Changing patterns in U.S. crude imports

U.S. crude oil import patterns have been undergoing significant shifts in recent months. While growing domestic tight oil production from the Bakken formation in North Dakota and elsewhere has helped displace imports from some countries, U.S. import volumes from the Canadian oil sands and Saudi Arabia have been on the rise. In total, U.S. crude imports fell about 94,000 bbl/d (1 percent) from the first quarter of 2011 to the first quarter of 2012. New sources of North American crude supply, adjustments in transport logistics and deep shifts in the depth of conversion and geographic distribution of U.S. refining capacity are redrawing the pattern of U.S. crude imports.

The most important development in U.S. crude oil import patterns is the continued rise in flows from Canada into the Midwest (PADD 2). Thanks to continued production growth from the oil sands of Alberta, Canadian crude now accounts for virtually all of PADD 2 crude imports. Canadian imports into PADD 2 reached an average of 1.76 million barrels per day (bbl/d) in the first quarter of 2012, a 323,000-bbl/d (22-percent) increase from a year ago, according to the latest data from the U.S. Energy Information Administration's Petroleum Supply Monthly (PSM). In the United States as a whole, first-quarter Canadian crude imports rose by 315,000 bbl/d year-over-year (Figure 1).

Along with growing domestic production, rising crude flows from Alberta to the Midwest were part of the reason behind the recent reversal of the Seaway crude pipeline, which is now sending crude oil from the Cushing Oklahoma trading and storage hub to the Houston area. The pipeline's co-owners, Enterprise Products Partners LP and Enbridge Inc., said last week they planned to expand its capacity from the current 150,000 bbl/d to 400,000 bbl/d in the first quarter of 2013, and then to 850,000 bbl/d in 2014.

At almost 2.5 million bbl/d in the first quarter of 2012, Canada is by far the United States' top crude supplier, with Saudi Arabia a distant second at 1.4 million bbl/d. But the latter, too, has sent increasing volumes of crude to the United States in recent months, with first-quarter average imports up by 294,000 bbl/d year-over-year. While the increase in Canadian crude imports represents the continuation of recent trends, the increase in Saudi crude imports marks a reversal from an earlier pattern, which had seen Saudi imports edge down in recent years. While market commentators have attributed the rebound to the startup of a 325,000 bbl/d capacity expansion at Saudi Aramco's joint-venture refinery in Port Arthur, Texas, that project, which is being officially inaugurated today, tells only part of the story. Monthly data show other Gulf Coast refiners, responding to Saudi offers of incremental volumes, have also stepped up their imports of Saudi oil, thus helping account for an average 264,000-bbl/d increase in first-quarter Saudi flows into that region.

Contrasted with steeply rising Canadian and Saudi flows, U.S. crude oil imports from the rest of the world declined by an aggregate 703,000 bbl/d year-over-year. This decline was led by a 538,000-bbl/d plunge in imports from Nigeria. East Coast refineries accounted for roughly half the drop in Nigerian imports, or 268,000 bbl/d, likely due to the idling of struggling refineries that ran in part on a diet of high-cost, light, sweet Nigerian crude, including ConocoPhillips' 185,000-bbl/d Trainer refinery and Sunoco's 178,000-bbl/d Marcus Hook plant, both near Philadelphia. Sunoco, which is being purchased by Energy Transfer Partners, has said that it might also close its 335,000-bbl/d Philadelphia refinery by August if no buyer is found. The fate of that plant continues to be unclear. Meanwhile, the Trainer refinery now looks set to reopen following its recently-announced purchase by a unit of Delta Air Lines. Regardless of these plants' future, however, some Nigerian import volumes into the East Coast may have been permanently displaced by domestic Bakken crude, small volumes of which are now being shipped by rail to both Sunoco's Eagle Point, New Jersey terminal near Philadelphia and to Albany, NY, from where it can be barged to refineries in New York Harbor and the Philadelphia area.

It is also important to note that the first-quarter decline in Nigerian crude imports was not limited to the East Coast. Shipments to the Gulf Coast declined by 274,000 bbl/d year-over-year, along with light, sweet crude imports of other origins, including other West African producing countries, Algeria, the North Sea, Central Asia and Latin America. In total, Gulf Coast crude imports fell by 354,000 bbl/d year-over-year, led by light, sweet grades, while drops in sour crude imports from Venezuela and Mexico were more than offset by robust gains from both Saudi Arabia and Kuwait.

Rising tight oil production in the Midwest (most of which is light, sweet crude) has lessened the need for imports through the Gulf Coast to serve that region. At the same time, increasing tight oil production in Texas has added a new source of light, sweet crude to the Gulf market itself, further diminishing the need for imports. Add to that the increasing ability of the U.S. refining complex to process heavy, sour crudes and you have a set of drivers that support a weakening in the price of U.S. light, sweet crudes in relation to heavy, sour crude prices which have held up relatively well in the recent crude market downturn. Should recent trends be confirmed, East Coast refiners using light, sweet crude that, until recently, appeared to operate at a cost disadvantage may soon benefit from a marked improvement in their crude acquisition costs.